I was very critical of a story in the AFR earlier in the week.
Are we really to understand that the News Corp papers campaigned against the most useless government in modern history just so that the ATO would not appeal a federal court ruling? To prevent that sort of political corruption of the tax system is why the Tax Commissioner in (nominally) independent of government. Winning a case against the ATO in court is hardly a “concession” – a miracle perhaps, but never a concession.
Well today, the AFR in its editorial has a far better version of that story.
The issue concerned paper transactions that allowed News Corp’s Australian subsidiaries to record a $2 billion loss while subsidiaries in tax havens posted a corresponding profit. Tax base erosion from profit shuffling by multinational corporations – especially new media companies such as Google – is a key issue for the G20 finance ministers’ meeting to be chaired by Treasurer Joe Hockey this weekend.
That is a version of the story that should have been told in the first instance. Rather than some dark conspiracy, we could have had an argument about tax base erosion and what, if anything, can be done about it.
Ironically the AFR has been reporting that probably little can be done. Last week it reported:
No government wants their tax base to be cannibalised. Yet this is exactly what could happen if the OECD wins its fight against base erosion and profit shifting (BEPS).
The goal of BEPS, which will feature in discussions at the G20 finance ministers meeting, and the G20 summit in Brisbane later this year, is to eliminate “double non-taxation” among multinationals. In theory, everyone likes it. In reality, getting there may be impossible.
One of the key problems in the fight against BEPS is no government wants to give up its own tax revenue. This problem was highlighted by US Treasury Secretary Jack Lew, who has told his G20 colleagues in an open letter that while the United States remains committed to the war on BEPS, it would not agree to a plan that sees its tax base cannibalised.
So while it strikes many people as being problematic that paper transactions result in huge tax losses, the reality is that those practices are legal under the tax code and government (that has complete control over that code) may have little or no incentive that change the tax code.